The Industry Life Cycle :

Practice :

FIN 2802, Spring 09 - Tang Chapter 17: Macroeconomic and Industry Analysis Practice Choose an industry and identify the factors that will determine its performance in the next three years. What is your forecast for performance in that time period.

Case Analysis: Tech Bubble/Bust and the Fed :

FIN 2802, Spring 09 - Tang Chapter 17: Macroeconomic and Industry Analysis Case Analysis: Tech Bubble/Bust and the Fed 1990s—especially second half—saw dramatic rise in stock prices
Growth in real GDP averaged 4.2% annually from 1995-2000
Technological changes of 1990s were an example of a shock to both stock market and economy
The market—especially high-tech NASDAQ stocks—began to decline in early 2000
Faced with these demand shocks, Federal Reserve would ordinarily have raised its interest rate target to prevent real GDP from exceeding potential output
Fed increased rates 6 times in 1999 and 2000 from 5% to 6.5%, then reduced rates 11 times in 2001 to 1.75% (1.00% by 6/25/2003)

The Fed and the Stock Market :

FIN 2802, Spring 09 - Tang Chapter 17: Macroeconomic and Industry Analysis The Fed and the Stock Market Might think Fed can estimate natural rate by a process of trial and error
Bring unemployment rate to a certain level (such as 4%) and see what happens to inflation
However, Fed looks ahead and determines whether current economic conditions are likely to raise inflation rate in the future
By raising interest rates to rein in the economy, Fed also brought down stock prices
By 2001, high-tech bust, recession of 2001, and attacks of September 11 brought criticism to an end
As the economy began a slow expansion, in 2002 and early 2003, Fed kept the interest rate low
Unresolved question: Who should be setting the general level of share prices—millions of stockholders who buy and sell shares, or Federal Reserve?